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Financial Valuation of Employee Stock Ownership Plan Shares

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Larry Cook has done a wonderful job in writing a book on ESOPs that is practical, readable and understandable. He accomplishes this feat even though the formation, valuation and maintenance of ESOPs can be a difficult endeavor given the complexities and nuances surrounding this area. Although titled "Financial Valuation of Employee Stock Ownership Plan Shares," it includes good insight into the decisions that go into whether to form an ESOP and whether an ESOP is feasible for a given company. For example, chapter 2 includes a very interesting story of a CFO that went through the process with two companies. He also presents his thoughts on the controversial areas of the actual valuation of a company for ESOP purposes as well as the DOL, tax and financial reporting requirements. The two appendices include the DOL proposed regs and the IRS training class materials regarding examination of ESOPs. In summary, Mr. Cook's book is an important read for business owners, Plan Trustees, CPAs, Appraisers and Financial Advisers and should be a part of any business library.

Financial Valuation of Employee Stock Ownership Plan Shares is a great resource for anyone looking to learn about ESOPS. The book takes a business owner's perspective in walking the reader through the elements of a good plan. Often overlooked when establishing an ESOP is the question of whether an ESOP even makes sense. This book devotes an entire chapter to that very question of who makes a good ESOP candidate. But the heart of the book is the focus on determining the value of ESOP shares. In this area, Cook goes into great detail on every aspect of ESOP valuation from independence issues and governing case law to control vs. minority positions. He covers repurchase obligations, adequate consideration, and phantom equity. One thing that really sets the book apart from other valuation tomes is the great supporting material like the great 70 page Appendix containing the IRS training guide to examining ESOPS. No business valuation library will be complete without Financial Valuation of Employee Stock Ownership Plan Shares.

Mr. Cook goes through about every major issue you will likely encounter in a business valuation engagement for an ESOP.

What's more important is the pending legislation sought by the DOL to make valuators responsible for their valuation reports as if they are trustees. At this writing, the legislation is pending, but if passed, the outlook for ESOP valuations will be become much harsher on valuators who submit substandard reports to their trusee-clients.

More troubling is that some trustees or valuators may not realize the specialized requirements of ESOP valuations, so may skip this resource under the assumption they know all about it. Truth is, most people don't know what they don't know, at least, not for sure.

Whether you're a trustee, valuator, ESOP advisor, executive in the sponsoring company, attorney, ESOP lender, plan participant or other stakeholder, you'll find good value in Mr. Cook's work. Yes, it's bit expensive, but the advice and insight is invaluable.

This text is a good overview of ESOPs, when one makes sense for a business owner, how an ESOP can help motivate a company's employees, legal issues, and share valuation (required by law). It is a readable and practical text that should be of value to business advisors, business owners, and valuation specialists. ESOPs are highly regulated by the government and must follow the requirements both at formation and on a continuing basis. There is a cost to setting up and maintaining an ESOP but there can be significant benefits for the business owner. Some are financial and other benefits are non-financial such as business succession.

Even though the book's title suggests it is primarily about valuation, it has a lot of coverage on practical aspects of whether it makes sense for a business to establish an ESOP and the regulatory environment. This should be of interest to business advisors and business owners.

For the valuation specialist, the book covers factors in valuing the company's shares that are unique to ESOPs - primarily due to government regulation. Those factors include: the impact of ESOP leverage, minority/control attributes of the shares, repurchase obligations, adequate consideration, and tax issues.